Learn the pros and cons of a retrospective workers’ comp policy
If you’ve never heard of the “retro” formula for a workers’ compensation case in Georgia, you are not alone. One of the most important things to know about these policies is that they differ from standard workers’ compensation, with differences that could impact your case in both negative and positive ways. Understanding both the advantages and disadvantages of these policies is essential.
To discuss which option is best for your workers’ compensation case, reach out to a trusted attorney as soon as possible.
What is a retroactive worker’s compensation policy?
These programs are somewhat more complex than the workers’ compensation that uses a rating method, as well as actual losses in its calculation. One thing that many people have discovered about this method is that the calculations are somewhat complicated. Companies often use this formula for cost-cutting, and they can see significant pros and cons.
In Georgia, employers can use retro workers’ compensation if they qualify for large deductible workers’ compensation. The National Council on Compensation Insurance uses the Loss Sensitive Rating Plan (LSRP) designation for such plans. Such policies offer more significant benefits for the companies than necessary for the workers, which makes understanding how these policies work all the more critical.
When an employer must carry workers’ compensation insurance but is unable to provide it through traditional outlets, LSRP plans may be considered. However, the employer must compare the retro plan with their other options, including criteria like projections, loss data and claims experience. An LSRP plan is something that should be considered a last resort.
How retro workers’ comp policies work
Retrospective workers’ compensation policies are based on losses on the part of the insured. These policies may entail:
- The insured’s initial payment is based on expected losses.
- The premium may be increased or decreased after the coverage period ends based on actual losses.
- Minimum or maximum amounts paid depend on a mathematical formula.
In short, one of these policies is an alternative to a guaranteed cost plan. Guaranteed cost premiums are not affected by the size of a worker’s claims or how many claims they make. Employers that are trying to keep a strict budget for their insurance costs often take advantage of these plans.
An experience rating may apply to a guaranteed cost policy, with future premium adjustments depending on the prior policy periods. The retro formula, by contrast, makes the adjustments according to the current plan. Current losses will play the most significant role in premium changes, but past losses might also be an issue.
Types of retro work injury rating plans
Retrospective rating plans come in several types, with the 2 most common being incurred loss and paid loss. Each of these plans has different possible consequences for injured workers. Having an understanding of these plans makes it easier for workers to see how a policy may impact them.
- Incurred loss plans, the most popular, are affordable to set up. One of the things that makes these plans easier to set up is their basis in actual, rather than projected, losses. The rate that is set under one of these policies usually sees very little fluctuation.
- Paid loss plans—with premiums over $1,000,000—are for the largest clients. The rates that employers pay vary depending on whether there is a favorable or unfavorable loss experience. Because favorable loss experiences result in lower premiums, employers often feel motivated to keep their work environment as safe as possible to prevent paying higher insurance rates.
Pros and cons of retroactive workers’ compensation policies
Retroactive workers’ compensation policies have some advantages that benefit injured workers:
- This option ensures that workers have the protection they need, regardless of the company size.
- Like other workers’ compensation systems, employees hurt at work also have the right to medical care.
Even though there are differences between retroactive policies and standard workers’ comp, the end result is that workers can still get help when they are injured.
The cons associated with retroactive policies include:
- Injured workers still have to apply for benefits and possibly deal with denials.
- Changes in state law can impact workers in unforeseen ways.
Another major disadvantage of this type of plan is that many accountants are relatively unfamiliar with how they work, impacting financial management for the policy. Because poor management can lead to overpayment of premiums, the insurer and employer can end up in litigation that hurts injured employees in the process.
A workers’ compensation attorney can make it easier for injured employees to figure out how to best proceed with their case. Even though retrospective policies are designed mainly to meet the employer’s needs, knowledge of how these policies work can be beneficial to a worker living with a work-related injury.